Publicly Traded Electric Truck Startup Lordstown Motors Corp Warns it May Run Out of Cash
【Summary】Publicly traded electric truck startup Lordstown Motors Corp said that there is “substantial doubt” that it can continue operations without an influx of new capital, which seems increasingly unlikely to happen. Lordstown's share price fell by 17% on Tuesday after the company told the SEC that its current level of cash and cash equivalents are not sufficient to fund production.
Electric truck startup Lordstown Motors said that there is "substantial doubt" that it can continue operations without an influx of new capital, which seems increasingly unlikely to happen as investors dump the company's shares. Lordstown's share price fell by 17% on Tuesday.
"The company believes that its current level of cash and cash equivalents are not sufficient to fund commercial scale production and the launch of sale of such vehicles," Lordstown wrote in a quarterly filing with the U.S. Securities and Exchange Commission on Tuesday.
"These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year," the company added.
Lordstown launched its IPO in Oct 2020 in a reverse merger deal with blank-check company Diamond Peak Holdings.
The company's shares trade on the NASDAQ under the stock symbol "RIDE."
Reverse mergers and SPAC deals have become a popular way to go public in order to attract new investments on Wall Street.
Last June, Lordstown Motors unveiled the prototype of its electric Endurance pickup truck. The battery-powered Endurance is a rugged truck targeted at commercial customers that's currently dominated by gas-powered models such as the popular Ford F-Series pickup trucks from General Motors and its truck division GMC.
Last year, Lordstown announced that its signed an exclusive licensing deal with Elaphe Propulsion Technologies, a developer of unique in-wheel electric motors. The in-wheel motor design of the Endurance integrates the electric motors into the wheel hubs and doesn't require the use of an axle shaft bolted to the wheel hub.
The Endurance is engineered to be lightweight, with all-wheel drive and a low center of gravity. For commercial and fleet customers, electric vehicles are also more reliable with lower maintenance costs compared to traditional pickup trucks. Lordstown said the battery-powered Endurance gets the gasoline equivalent of 75 mpg.
In addition, Lordstown Motors is one of the few EV startups with its own factory. The company announced in November 2019 it acquired GM's shuttered 6.2 million square foot Lordstown assembly plant in Ohio.
GM announced it was closing its Lordstown, Ohio plant in Nov 2018 as part of a larger company-wide restructuring plan to trim expenses, including a shift from building sedans to more profitable SUVs and pickups.
However, rather than let the plant sit idle, GM agreed to loan Lordstown Motors up to $40 million to retool the plant and get it ready for electric vehicle production, so the company could begin its ambitious plan of building the electric Endurance pickup. GM also took a stake in the company with a $75 million investment.
In 2019, Lordstown Motors hired Rich Schmidt, a former director of manufacturing at Tesla Inc, as its chief production officer to oversee the production of the Endurance.
But owning a factory is not enough to help the struggling EV startup.
On an earnings call last month, Lordstown said its Endurance production this year would be half its prior expectations and it needed additional capital to execute its plans. The company blamed COVID-19 and industry-wide related issues for higher spending on parts, shipping and third-party engineering resources for the setbacks.
As reported by Reuters, Lordstown said options to raise money could include asset-backed financing and investments from strategic partners including other automakers. However, Chief Executive Steve Burns, the company's largest shareholder, said Lordstown was not for sale.
Burns said on the call that the launch of the Endurance remained on track for September. On Tuesday, however, Lordstown said it had done "limited marketing activities" around the truck and had no binding purchase orders or commitments from customers. With few orders, the company will continue to burn through cash, which will further alarm investors.
Last summer Lordstown Motors was praised by the former Trump administration for building its Endurance pick up in the U.S. and bringing jobs back to the region. Former Vice President Mike Pence even spoke at the unveiling.
"Today is a new beginning for Lordstown and it's a new day of leadership in electric vehicles in the United States," Pence said at the event. "Today is one more example of President Trump's commitment to make American manufacturing great again."
Electric trucks, both for commercial and consumer vehicles, are a hot new focus in the auto industry lately. Their gas counterparts have been the most profitable segments for both GM and Ford and now the two automakers are introducing fully-electric versions of its popular trucks.
Ford recently revealed its F-150 Lightning pickup, which is based on its best-selling truck. GM will soon deliver the Hummer EV under its truck division GMC. Even electric automaker Tesla is entering the highly competitive truck segment with its upcoming Cybertruck. New startups like Amazon-backed Rivian are also looking to compete in the segment. Rivian is also planning an IPO and is set to deliver the first electric pickup called the R1T this summer.
With legacy automakers and new startups delivering their own fully-electric trucks, startup companies like Lordstown Motors face a difficult road ahead as investors place their bets elsewhere. So it appears that the Ohio-based company is in peril.
Lordstown's shares were trading at $11.34 as of Wednesday afternoon. The shares have lost roughly two thirds of their value since February when the stock was trading around $30.75.
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